tv Bloomberg West Bloomberg July 27, 2014 7:00am-8:01am EDT
every weekend we'll bring you the "best of west," interviews with the power players in global technology and media companies that are reshaping our world. apple is dropping more hints about upcoming products. in the company's third quarter earnings release, c.e.o. tim cook said we are incredibly excited about the upcoming release of ios 8 as well as other new products and services that we can't wait to introduce. on top of that, the c.f.o. said it will be a "very busy fall." the buzz about new products, specifically bigger screen iphones comes as apple reported a 6% gain in revenue and 12% gain in profit in the third quarter. fueled by rising iphone sales. for the latest on apple's quarter, our editor at large cory johnson spoke with alex. and gene muenster, who has been covering apple since 1995. cory started by asking gene which part of the earnings report stood out! >> two things. first is the growth margin was much better than expected which is a sign that the underlying profitability is better. that was a huge concern nine months ago. they are doing well there. second, they are reiterating
this product line. new categories. products and services in the back half of 2014. they started this expectation almost a year ago and we're now at -- this is a critical window now in next six months to get some of those products out. i think that is the real takeaway. >> alex, let me ask you about the gross margin. that was number that jumped out at me as well. i was wondering if it would take a big hit because over the new products coming out likely this quarter? >> we think apple has a propensity to guide. we're not overly concerned with this one quarter's worth of guidance. going back to your original question, cory, is this result good enough for now? definitively yes. more importantly, it was a good result. apple is showing the best e.p.s. growth it has in seven quarters, up 20%. it is coming at a time when its key competitor, samsung is in a state of contraction. >> alex, i was surprised that we saw iphone sales increase 13% year over year.
with the new phone coming and everybody knows it, bloomberg news, our colleagues reporting that the first time, you would think the sales would have fallen off a little bit. >> well, they didn't. it is proof that apple has differentiated product in the marketplace and also a sign that it is succeeding in emerging markets. it talked about the brick countries and in particular china, they are seeing 2 x the rate of industry growth. i think what is really important is we are going to get the new iphone 6's and iwatch and i think that is going to be great for apple.
>> gene, why were ipad sales the lowest they have been since first quarter of 2012? >> i think the speed that the ipad took off over the last four years was a little bit better than what people expected. i think they have saturated the key markets, u.s. and western europe. the growth in ipad still was strong in emerging markets but at the core they hit a saturation point. the next logical step is go the enterprise route, really push this i.b.m. experience and relationship to increase penetration there and two, maybe they go a totally different direction. maybe they actually move away from the ipad and as they come without this tablet, i think they are willing to make that transition. i think they are willing to sell a $600, $700 iphone and give up a $330 ipad mini. there could be something bigger going on here.
>> i hadn't thought of it that way. i'm tweeting my notes out so i can look at them when i get back on the air. according to my tweets, ipad sold 225 million ipads since summer 2010 where the iphone has sold 551 million. a little more than half as many ipads sold in three years. what does that tell us about how big the market can be? >> that is a great number. that is a number that apple defined. i actually disagree with gene. i think apple is a long way from saturating what it can do with ios and the tablet market. yes, there will be some blurring in distinction between the minis and the iphone, whatever they call it. at the end of the day what apple stands to do with i.b.m. is taking bigger chunks of that $677 billion enterprise market opportunity out there for i.t. devices where it is only scratching the surface. tim cook said that on the call and i think he is right. >> gene, both of you guys do a ton of research. that's why we have you on the show. gene, what kind of research are you doing to figure out what the market might ultimately be for the ipad? >> we do different surveys in emerging markets. we look at intent to buy which is a critical metric. it is less about what you bought
and about intent to buy. if you collectively look at all of those, the intent to buy iphone is high. tends to be anywhere between 30% in emerging markets and 70% in the u.s. and those numbers keep inching up. despite all of this competitive talk, i think that is critical focus here in trying to get an edge in how the iphone is progressing. some other fun stuff we report on today, every six months we do a head-to-head test between google and siri and see which one is better. for the first time, google just sneaked past siri. i think the big picture here is despite that, people still want their iphones. alex and gene with our editor at large, cory johnson. from former secretary of state hillary clinton to president obama, silicon valley has been a top stop for big name democrats. why is washington obsessed with silicon valley? that is next.
>> welcome back to the best of "bloomberg west." i'm emily chang. former secretary of state hillary clinton has recently made the rounds in silicon valley, stopping at facebook, twitter and google. eric schmidt pressed her on the issue of n.s.a. surveillance. take a listen. >> as you know, google is quite opposed along with the other tech companies about the overreach of the nsa, and we think, for example, bugging angela merkel's phone is pretty stupid, if i can be blunt. >> mm-hmm. >> what is your opinion about domestic surveillance? this occurred after you were there. >> right. >> do you have an opinion about this? number one question from google.
>> well, yes, don't do stupid things, and that does not mean we don't need to have a system of surveillance, because we do. i think that has to be accepted, but how we do it and how we explain it and what we tell our partners is incredibly important. i was just in berlin on my book tour in europe, and, of course, that was the number one issue, and i said, look. angela merkel is a friend of mine, and i apologized to her. it was wrong. it should not have been done. >> i had dinner with her and she said what are they doing? listening to my conversations with my mother? i mean, people remember that. >> absolutely. we were beginning to take a hard look at what we did post-9/11, and that was happening. the president had actually given a speech before the snowden disclosures about the need to take a hard look at the legislation and how it was being implemented, so we had to do that, because i voted for things, and then i voted against
things, trying to figure out how to get the right balance in security and liberty, the age-old question, and we have to do a much better job, and we have to do it in a way that does not affect our great companies, like google, because, clearly, that would be unfortunate for us. >> clinton also participated in the q&a session at twitter and facebook. and secretary clinton is not the only big democratic name stopping in the bay area, president obama returning tonight to attend a luncheon in loss at owes hills. my partner spoke with former san francisco mayor willie brown and said what is it that attracts politicians to the bay area? >> almost more than anything else, california and the bay area are cash cows, and in particular, for democrats. real, quality, upscale democrats come here to get re-fueled. >> get their wallets refueled and campaign coffers.
it is an election year this year. but is it something different now? certainly this city is very different now from when you first became mayor, largely because of the decisions you made about building different kinds of housing, more upper income housing in places, to help set the table for the growing tech scene of today. >> in reality, san francisco has transformed itself over the last 20 or so years from being kind of like many other places in america into something very special. a culmination of incredible research capacity for medical coverage and for health and the whole business of what do you do with the so-called internet, how do you move into the world of tomorrow? we are now the ground zero for all of the thought processes and all of the investment and the capital that needs to fuel those two concepts.
>> about 10 or 12 years ago when you were trying to decide what was going to happen with the presidio and it was going to be converted from a military base to some kind of business. i was completely against what you were deciding when you made the decision to make it possible for investors like magic and george lucas, whose operation was there, which i foolishly thought was the future of this city. talk to me about the role of economic diversity, because you were right, and i was wrong. what is the role of economic diversity in san francisco and how did it play out here? >> it clearly demonstrates itself by what you currently see, and you have to be incredibly careful that you don't become reliant on one area of the economy. you have got to be prepared to diversify. you have to be prepared, hopefully, to continuously promote modifications, creations, and new opportunities, and that is what we have done in san francisco.
>> i don't know if we have done it well. the tech scene is just so -- i see it through a certain rose-colored glasses because i do this tech show here, but it seems the whole world is flocking here to do technology, and not even biotech, but technology, technology in a certain way. >> naturally, they flock here to live, and they are living part of the engineering world, who are trained to deal with the internet. the quality of life would never sustain itself or hold their interests unless there was a kind of diversity in the world of the arts, diversity in the world of entertainment, diversity in the world of health, diversity in the world of food and diversity in the world of design. all of those things happen in northern california, and, in particular, in the bay area. that is what makes us different. >> talking about politicians coming year, there is something not just about getting those wallets filled. politicians associating themselves with the future, being with tech. g.e. is just inventive of a company in many ways as google
is, but politicians standing next to eric schmidt that makes them seem like they are more forward thinking? >> i would guess politicians would be foolish to allow themselves to be cataloged only for san francisco for that purpose, i think you have to be careful. remember, microsoft is in the northwest, in seattle, and that still has all of the components of a part of this whole scene. you have to be very careful about what happens in north carolina, in particular, just an incredible kind of component that is there, and then finally, of course, new york still has its place in the sun, so to speak, and chicago is being impressive, so not only do they come here to stand next to the google guys or stand next to who
it is, facebook, but they have to make sure they make the other stops. >> the last presidential election, every single candidate was running an ad that showed up with a windmill that suggested they were greener than the next regardless of their environmental policies. a messaging that happens when you stand next to mark benioff. >> keep in mind, the whole business of greenery is big-time, and believe me, it does not look as green today in california. visibly, as it did one year ago, because of the absence of the water from the clouds, so to speak. clearly, politicians have got to be careful on their green advocacy. they have got to demonstrate that in a different way, and mark benioff, obviously, that -- affords people that opportunity. but keep in mind, there is the objection to things like the pipelines that come to deliver energy. you have to be careful with all of these things, and we politicians, in particular, coming to northern california, which is far left of the rest of the country.
>> to that point so, rand paul, a possible republican candidate for president, has aligned himself with a northern california libertarian instinct. it has also been very important. san francisco, in the valley, maybe not. is there still an element that the right could draw themselves, whether for clinical purposes or financial purposes? >> very much so in california. there has always been incredible independence among people who did not exactly go left and who did not exactly go right. they were not the middle of the roaders. they were the libertarians, or they are the libertarians. >> and a lot of them like technology. >> absolutely, and rand paul, rand paul spends as much time as he possibly can doing the same thing hillary clinton does and doing the same thing barack obama does.
>> welcome back to the best of "bloomberg west." i'm emily chang. basketball superstar kobe bryant is gearing up for both the nba season and are release of his documentary, "kobe bryant's muse." the film zeros in on bryant's inspirations which come from meeting everyone from oprah winfrey to apple's johnny ive. jon erlichman caught up with kobe and asked him all about it. >> i look inside and say, ok, what was the genesis for me? who
inspired me to get to this point? when i face adversity and look at this challenge and opportunity, where did it come from? who did i learn that from, and that is what this film was really about. it was about a kid seeing the film and being inspired by the film, being able to have muses of his own. that's really what it is about. >> what is this kobe process? you pick up the phone who are leaders in industry and pick their brain? >> exactly. i just cold call people, absolutely. i cold call people and pick their brain about stuff and some of the questions i ask will seem really, really simple and stupid, quite honestly, for them, but if i do not know, i do not know. i have to ask, so that is what i do. i asked them and learn more about how they build their business and run their companies and how they see the world. >> and who are some of the people that you pick up the phone and call?
>> i just started in the nike family. i cold called mark parker all the time. johnny ives, dan wieden, oprah winfrey, recently arianna huffington, and the list goes on and on and on. hilary swank. it just goes on. >> take johnny ive. you guys had a conversation? >> he is obviously unique in what he does. why? how? how does he view product? how does he view the process of designing the product? how is he seeing the world evenly than anyone else who is manufacturing hardware? because there is something going on for him the moment that he sees something to when it goes into his brain that is a different process. i am curious to know what that is.
>> and you went to apple to spend some time there? >> yeah. i went to apple. i spent the day there talking with johnny and kind of picking his brain about product and things like that. what makes them who they are and why. i am very, very curious about that. and, i think, once you have passion, you can look at other entities or works of art, you can draw things from that to help you be better at what you're doing, by looking for those common denominators. i don't even know, how do i prepare? how do i prepare? how do i build my game? and my response is it is much like he builds products. yes, you look at this, and the
end result that you want to create, but in order to create that, there are so many little things a go into this device. it is no different than building a basketball game. you start with what you want your game to be, what would make your game most unstoppable or hard to deal with and then you work backwards from there, and you start building it one piece at a time, one move at a time, one counter at a time. there is a lot of similarities there. >> you got this business, kobe inc. are there more investments coming? >> we haven't made any formal announcement. i'm sure we won't. andrea fairchild is helping me run kobe inc. which is cranking away every day building out the internal structure of what the company is to be and how can we communicate the culture building out that model, that plan. that's what we're focused on. >> you need headquarters, you need to hire people, all of those things when you're starting out the business.
>> andrea is the one who keeps things lined up and dotted. i have this idea, this vision of where i would like for us to go. now it is important for us to go one step at a time and not get too far ahead. >> would you want to put the market skills you have learned to work for others? >> maybe. for me doing that, it seems like i should really do that for free. what i'm going to tell them is be yourself. be you. be you. there is no gimmick. you don't have to contrive anything. who are you? where are you today? what is your story? where does that come from?
>> i'm sure you have learned a lot about that in the context of all the endorsement deals you had through your career. some of them are amazing. some of them maybe less so. >> right. >> what have you learned from going through that process? the endorsement process? >> you learn a lot. i have seen so many different sides of that spectrum. those who are the best in the world at doing it with those who are no, maybe not so. and you see how they operate and think, culturally how they are different, how they communicate, what do they pride themselves on? companies that have complete focus and others that lose focus and try to regain it. i've learned a lot just through osmosis really. >> nba star kobe bryant with our own jon erlichman.
>> welcome back to "bloomberg west." i'm emily chang. it has been a tense time as the death toll rises for israelis and palestinians. how can technology help avoid even more casualties? our editor at large cory johnson spoke with red alert app creator ari sprung from jerusalem. it is an app that warns israelis of a coming missile strike. we also spoke with uzi ruben. uzi joined us on the phone from israel. i started by asking about the technology behind israel's missile defense system, the iron dome and how it keeps israelis
safe. >> there are missile defense system works like -- to make it -- look at it and shoot it. and kill it. it sounds simple when i say it. the implementation is difficult. it is like hitting a bullet with a bullet. the incoming missile is flying about twice the speed of sound. you have to find it. you have to find it in the sky and hit it. easy to say, difficult to be done. >> ari, let me ask you, uzi's missile defense system was a response to other failures in the past using new technology.
what new technology are you using with red alert that was not possible in the past? >> basically, red alert when i created two years ago before i started working here, it is very basic technology and technology that any app developer could use on -- any day he wants to. we are not using anything so sophisticated here. as the numbers of people who are subscribing to our app, we see that the technology, we have to get the notification out as fast as possible so that's a real technology challenge. trying to get to all these people and it has to be fast because it is saving lives. >> what kind of pickup have you seen in activity since the latest escalation? >> there has been a sharp increase in downloads, especially in israel. we had around total 80,000 downloads. mainly bombarded. because everybody is a target
here in israel -- we have over 300,000 on android, ios also over 300,000. we have an ios in the states thanks to the israeli ambassador. that is seen a large increase in downloads there as well. there has been a huge demand, for this app the past couple of weeks, unfortunately. >> uzi, when it comes to the effectiveness of the iron dome, i read differing reports -- some say it is 90% effective in terms of intercepting rockets. some say it is more like 30% or 40%. what would you say? >> i would say this -- the numbers speak for themselves. if it was 30% or 40%, we would see a lot more casualties in our
cities than you see up to now. i am talking about places in the city. let us hope it keeps that way. 40% is impossible. let's think about it. hundred of rockets every day -- they should've landed some. the tel aviv area and cause damage and casualties. they are getting blocked. the whole purpose is to find out. some of them are going to hit and some of them don't. we decide which one is the dangerous one and the close ones. up to now, i would say the iron dome is an effective wall of defense. it can prevent what could be serious casualties. we saw interceptions. we saw the heavy blast. this is not 30% or 40%, it is close to 90%.
>> let me ask you a question and maybe it is not an easy one. i wonder, you know, obviously you've written your app in ways to try to help people be safe, but i wonder do you consider the fact that it also makes it easier in some regard for the state of israel to sustain these rocket attacks and go on the offensive in gaza and the terrible suffering of the people in gaza, many of whom who are civilians. does your app make it easier for israel to go on the offensive against the people in gaza? >> me and my partner created this to save lives and notify people. you have to understand -- the other side is targeting civilians. i was a chain commander in the israeli army.
we only target terrorists. we only fight against terrorists. we are not targeting anyone else. it is unfortunate that innocent people were killed. we are only targeting terrorists. that's only thing that we're targeting. not only that, sometimes, we have been in cases that even our lives might be in jeopardy in order to save these people's lives. and only hurt the terrorist. i know that firsthand. thankfully, they do not need this kind of app. we need it because they are targeting civilians. on the other hand, they are not looking at the civilian so much. >> a number of civilians have been killed in gaza. a number of children have been killed. uzi, i would like to ask you the last question. if israel has such sophisticated missile defense and missile detection technology, could this technology at all be used to better target places in gaza where children are not playing
on the beach, for example? >> unfortunately, errors will happen in war. anyone who is involved. there will be civilians who get in the way. i want to point out an important fact. hamas has sent its rockets inside civilian installations. there is no way to hit them -- concentration. let me stress this point. every rocket that comes out of gaza can be traced where it came from. that place can be hit and destroyed. we could have stopped that in about one hour, but the cost of human life would be tremendous. so we do not do it.
that is called human shielding. that is what they are doing. >> cory johnson and i with ari sprung and uzi ruben. football season is coming soon. that has cbs gearing up to air its first season of thursday night football. we'll hear from the chairman of cbssports on why the network is devoting more production resources to thursday night games than any other game but the super bowl. that is next on "bloomberg west." >> welcome back to the best of "bloomberg west."
games. jon erlichman caught up with cbssports chairman sean mcmanus. take a listen. >> when we finally got the call, what he said to me was now real work begins. it is a lot work launching a new franchise. we still do up to seven games every sunday of nfl football. and we have thursday night. the wednesday after the super bowl, it has been about 85% of my job on thursday night football. new graphics and music. technical facilities. we're using more equipment on each thursday night game than we use at any other game on cbs but the super bowl. >> in terms of numbers, the
thursday night game was averaging somewhere between 6 million and 8 million viewers. do you have any expectation of how many will be tuning in for thursday night football? >> i do not like to get into specifics for ratings. i think our ratings will be good. i think we will do healthy numbers. so much of the ratings in football and any sport depend upon how good the game is. if you have a competitive game at 11:00 in the fourth quarter, your ratings are good. if you have a blowout, it does not. >> thursday night is a one-year deal. the league was offering that and you're totally fine with it.
anything that would prohibit you even during the season to discuss with the league, possibly extending this if things go well? >> possibly, we talk to the nfl almost daily. they are one of our most important partners. anytime they want to talk to us about extending a one-year deal him a we will make ourselves available. i think we will talk a lot and adjust production perhaps as the season goes along. it is important to remember we are producing the second half of the season for the nfl network. >> beyond broadcast, talk about cable. every broadcast network today has a complementary sports channel. cbs, nbc, obviously abc as espn and fox has fox sports one. what do you want to do long-term can cbssports network to make it unique and stand out? >> it is not fully distributed right now. we have not taken the path of investing hundreds of millions of dollars into the program because that is not our business model right now. i work for a man who doesn't like losing money in sports. other companies decided to create their sports channel as
large loss leaders in the near term. it is good for their company. i'm sure that is the right strategy for them. we have not gone out and acquired major league baseball and nascar and world cup soccer. we have a plan. at some point, we will get there and be competitive. we are just not there yet because we do not invest so much money that we lose a lot of money. and will be very valuable and relevant and it will be a good sports network. >> probably in the months to come, nba rights will potentially be up for grabs soon. there have been reports already that there are negotiations taking place already. does cbs have any interest in the nba as a destination? >> i love the nba. i think it is a great product. i think espn and turner have done a great job showcasing it. because of our schedule with golf and college basketball, we don't have room in our schedule right now for a full slate of nba games and unless you are willing to make the commitment to an entire slate, we will probably not be able to bid on it. i would love to, but we have golf a lot of weekends from
january through the first week in april. with the masters. we have college basketball in december, january, february, and march including the tournament, so for us to program many nba to make us competitive probably is not in the cards. >> fox got everybody's attention by showing a strong interest in time warner. what was your reaction to the announcement? >> i do not like to comment on other people's acquisition plans. what is interesting is whenever somebody talks about big acquisition or merger, sports is always at the center in those talks. the fact that time warner has as many good sports properties as they have, i am sure it is some kind of factor in many discussions that will be had going forward. >> jon erlichman with cbssports chairman sean mcmanus. the new frontier for scientific exploration could be the open
>> welcome back to the best of "bloomberg west." i'm emily chang. 94% of life on earth is underwater, but less than 5% of the earth's oceans have been explored according to the national ocean service. deep flight is trying to change that with its underwater airplanes which have dived into the waters of hawaii, mexico and even lake tahoe. cory johnson spoke with deep flight founder as part of our series how people are using his device. >> that is the one you just saw. very wealthy individuals. you know, the yachts can explore the service, and we launched, we put one on a boat. >> it is crazy. it is huge, right? >> yes. his boat was in town.
it is crazy, right? >> the biggest yacht in the world. >> he has a few expensive watches too. what are some of the cool things people have done with this? >> everyone gets to see something they have not seen before. it turns some people on, maybe not others, but richard branson has one as big as we are. you just look into the big eye of a predator, the way humans have never done before. that's payoff. >> can i tell you about the first time that i saw your super falcon?
i was working at a hedge fund, and i looked out of the window, and i saw these two guys taking what looked like a torpedo in the parking lot. steve fossett had just passed away, tell me about how you transitioned this. >> steve fossett was one of the very first private individuals. he gave us a means of doing a lot of ready. we have pivoted that into the -- of r & d. we have pivoted that into the public. we are today raising money to build these machines for the public. they have evolved. so you can have personal transportation. you can go. >> and you are doing that through crowd funding. tell me about that. >> it enables small companies like ours to solicit first round funds from the public. it is a big deal. it is great. >> and do they get a piece of the company?
how does that work? >> this is not the normal crowd stuff. >> give me your money. >> this is the real deal. equity investment. so the crowd funding is simply connecting individuals to companies like ourselves. it is a really good thing. >> tell me about the technology. what is new? why is this possible now and it wasn't possible 30 years ago? >> ok. energy, batteries. the imagination belief that we can fly underwater. i am sorry, and it could have been done 50 years ago, but the batteries did not exist. lithium ion phosphate. they are safe. they are not the ones that blow up, by the way.
>> if they catch fire, that does not help you. >> he didn't want to burn his yacht down. >> i would pursue him that he would not want that. have the material sciences changed, as well? are there materials used that are lighter and stronger? >> this composite, carbon fiber and resin, and they are actually probably five times stronger than other metals and steels. >> are you still making them in -- >> we are assembling them. lots of machine shops around here. >> how do you envision this going forward? is it the superrich guys, or is it something else? >> no, no. the super rich guys are opening the market for everybody. we will get down to tourism. think about it. we will be flying underwater. >> ever wonder how a tablet is made? up next, we're going behind the scene s of microsoft's top secret surface lab to find out.
>> welcome back to the best of "bloomberg west." i'm emily chang. microsoft's earnings report was a mixed bag. revenue rose 18%. net income fell, though, 7% to $4.6 million. costs related to the nokia hand set acquisition weighed down the bottom line. this is the first quarter under the new c.e.o.. my partner, cory johnson got a look at the top secret lab where the surface was created. >> inside the secretive surface labs at microsoft, you see one thing. microsoft is business as usual. >> it is not in our d.n.a. 10 years ago. >> hardware design with constant improvements over many years. >> this is not one of these
things where we just started nine months ago and we came up with a good idea. >> the design tools are a sight to behold. >> you start to see that same thing come to life right here. this is our model shop. >> the model shop has all sorts of tools, old school and new. table sauce, power drills, 3-d printers and all sorts of materials to model with. it is a modern geppetto's workshop. it led to a $900 million write-down. with each release, the product has gotten better. market share, still low, is quietly growing. >> this is the hinge for the kick stand. 400% the actual size. they to get a real sense what it would look like and feel like and sound like, when they made the actual kick stand at a much smaller size, they knew what they were getting into.
microsoft what they think is a productivity tool to replace the laptop. >> it gets you to that perfect piece where you go this is it. >> cory johnson. bloomberg, washington. >> cory johnson, our editor at large. we that, does it for this edition of the best of "bloomberg west." you can catch us monday through friday. we'll see you next week.
>> tonight on "titans at the table," i traveled to what many consider the las vegas of the east. macau. this is part of what attracts people? >> yeah. >> the small territory on the south of the chinese coast raked in $45 billion of revenue. more than seven times that of vegas. >> did you ever think macau would surpass las vegas by that much? >> it makes perfect sense. the resorts are world-class compared to las vegas. macau has taken off. >> the next generation of people fromhi